Current Awareness in Aging Research (CAAR) Report #213--November 20, 2003

CAAR (Current Awareness in Aging Research) is a weekly email report produced
by the Center for Demography of Health and Aging at the University of Wisconsin-Madison
that helps researchers keep up to date with the latest developments in the field.
For more information, including an archive of back issues and subscription information
see:

1. LUXEMBOURG INCOME STUDY: The Luxembourg Income Study has recently added
an interactive web tabulator for its data. "This service permits registered
LIS users to design and create tables based on the underlying LIS data sets.
At the moment we are only able to provide a limited number of datasets and a
restricted set of variables as not all member countries have agreed to permit
access through our web service. The variables selected for inclusion in this
first version of the tabulator cover basic demographic, income, and poverty
measures that are key elements of the LIS data. In the future we hope to be
able to provide access to an expanded group of data sets and to include a large
subset of variables." Note that"all restrictions related to the use
of data derived from the LIS data apply to the tabulations generated through
these new services," and that users must register with LIS, and obtain
a userid and password before access is allowed.

This report analyzes key issues surrounding the implementation of a Medicare-endorsed
prescription drug discount card program. Medicare prescription drug discount
cards have been proposed as a short-term strategy for lowering prescription
drug costs for Medicare beneficiaries. The report considers the implications
for both discount card sponsors and beneficiaries of alternative program designs,
including such features as the annual lock-in for consumers, exclusive formularies,
providing comparative information to consumers about drug prices and discounts,
administration of low-income subsidies, and the short duration of the program.

The developed world stands at the fore of a phenomenal demographic transition.
Over the next 30 years the number of elderly in the U.S., the EU, and Japan
will more than double. At the same time, the number of workers available to
pay the elderly their government-guaranteed pension and health care benefits
will rise by less than 10 percent. The fiscal implications of these two demographic
trends are alarming. Paying promised benefits will, it appears, require a doubling
or more of payroll tax rates. This paper asks if there is a silver lining in
this dark cloud hanging over the developed world. Specifically, can the developed
economies hope to be bailed out by either macroeconomic feedback effects or
by increased migration?

To address these questions, this paper develops and simulates a dynamic, intergeneration,
and interregional demographic life-cycle model. The model has three regions
the U.S., the EU, and Japan which exchange goods and capital. The model features
immigration, age-specific fertility, life span extension, life span uncertainty,
bequests arising from incomplete annuitization, and intracohort heterogeneity.

Other things equal, one would expect the aging of the developed economies to
increase capital per worker as the number of suppliers of capital (the old)
rises relative to the number of suppliers of labor (the young). But given the
need to pay the elderly their benefits, other things are far from equal. According
to our simulations, the tax hikes needed to finance benefits along the demographic
transition path generate a major capital shortage that lowers real wages by
19 percent and raises real interest rates by over 400 basis points. Hence, far
from mitigating the developed worlds fiscal problems, macroeconomic feedback
effects make matters significantly worse.

The simulations also show that increased immigration does very little to mitigate
the fiscal stresses facing the developed world. On the other hand, there are
policies that can materially improve the developed worlds long-term prospects.
The one examined here is closing down, at the margin, existing government pension
systems and using consumption taxes to pay off those programs accrued liabilities.
This policy could be coupled with the establishment of a fully funded mandatory
individual saving system. According to our simulations, this policy would impose
modest welfare losses on current generations, but generate enormous welfare
gains for future generations. Future Europeans and Japanese benefit the most.
Their net wages almost triple, and their welfare levels double compared with
the no-reform scenario.

This paper shows that households who enter retirement with low wealth consistently
followed non-permanent income consumption rules during their working years.
Using the Panel Study of Income Dynamics (PSID), household wealth in 1989 is
predicted for a sample of 50-65 year olds using both current and past income,
occupation, demographic, employment, and health characteristics. Using the residuals
from this first stage regression, the sample of pre-retired households is subsetted
into households who save 'lower' than predicted and all other households. The
panel component of the PSID is then used to analyze the consumption behavior
of these households early in their lifecycle. It is shown that these low pre-retirement
wealth households had consumption growth that responded to predictable changes
in income during their early working years. No such behavior was found among
the other pre-retired households. Moreover, the low wealth residual households
responded both to predictable income increases as well as predictable income
declines, a result that is inconsistent with a liquidity constraints explanation.
After ruling out other theories of consumption to explain these facts, it is
concluded that households who entered retirement with lower than predicted wealth
consistently followed near sighted consumption plans during their working lives.

C. "The Role of Retiree Health Insurance in the Employment Behavior of
Older Men," by David M. Blau and Donna B. Gilleskie (National Bureau of
Economic Research w10100, November 2003, .pdf format, 55p.).

Abstract:

We model the employment and medical care decisions of older men who face health
risk. The budget constraint incorporates detailed characteristics of health
insurance as well as Social Security and private pensions. A man whose health
insurance is tied to continued employment with his current employer faces the
risk of large medical expenditures in the event of an adverse health shock if
he retires before becoming eligible for Medicare at age 65. A man whose employer
provides retiree health insurance or who has access to other health insurance
not tied to his employment decision (e.g., from his wife) can retire before
age 65 without consequences for his health insurance coverage. We use data from
the Health and Retirement Survey to estimate the parameters of the model using
structural methods. Simulations based on the estimates imply that changes in
health insurance, including access and restrictions to retiree health insurance
and Medicare have a modest impact on employment behavior among older males.

People often find it difficult to make the right decision about retirement
savings. The payoffs are in the distant future, and the promise of pleasure
tomorrow can mean pain today. The wrong decision yields an instant gain, the
outcome is uncertain, the decision can be postponed without immediate penalty.
In the end, the pressures of immediate gratification, delayed benefit, the unknown,
the uncertain, the uncomfortable, ally against wise decisions. Yet, while many
people yield to these influences, many others make the right choice. That drives
us to ask why. Recent research has examined various approaches to promoting
retirement investment. One promising strategy, automatic enrollment, taps into
an old theory about the functional order of behavior and attitudes. This chapter
examines the theory to understand why automatic enrollment has a good chance
of overcoming the natural impediments to wise decisions about retirement investments.

Retirement planning and voluntary as well as mandated contributions to pension
plans require a series of decisions under uncertainty. Those range from initial
decisions about the magnitude of contributions and allocation across different
investment options and choice of option providers, to periodic reviews of these
decisions in light of possible changes in goals or circumstances. Behavioral
decision research provides a series of lessons about how such decisions are
made and thus for the optimal design of pension plans. This chapter will address
the role of affect in perceptions of risk and subsequent decisions to take actions
that reduce or manage perceived risks. I review evidence showing that individual
and group differences in risk perception, much more than differences in risk
attitude, are responsible for differences in the choices people make. If people
fail to be alarmed about a risk or hazard, they fail to take precautions. Risk
perception, on the other hand, is predictable from general characteristics of
the hazard and from prior, personal history. The risks associated with inadequate
retirement planning have all the characteristics associated with hazards that
do not evoke strong visceral reactions.

14. American Journal of Sociology (Vol. 109, No. 1, July 2003). Note: Full
electronic text of this journal is available in the ProQuest Research Library.
Check your library for the availability of this database and this issue.

B. click on "browse by publication"
C. Click the "fax/ariel" radio button, type the Journal Name in the
"by words in the title" search box and click "search".
D. View the table of contents for the issue noted.

Canadian Journal on Aging (Vol. 22, No. 3, 2003).

Educational Gerontology (Vol. 29, No. 9, 2003). Note: Full electronic text
of these journals is available in the EBSCO Host Academic Search Elite. Check
your library for the availability of this database and these issues.

Social Work (Vol. 48, No. 4, 2003). Note: Full electronic text of these journals
is available in the ProQuest Research Library. Check your library for the availability
of this database and these issues.
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16. AMEDEO MEDICAL LITERATURE: Note: "AMEDEO has been created to serve
the needs of healthcare professionals, including physicians, nurses, pharmacists,
administrators, other members of the health professions, and patients and their
friends. They can easily access timely, relevant information within their respective
fields... All AMEDEO services are free of charge. This policy was made possible
thanks to generous unrestricted educational grants provided by AMGEN, Berlex,
Eisai, Glaxo Wellcome, Novartis, Pfizer, Roche, and Schering AG."

17. IMF: "Who Will Pay? Coping with Aging Societies, Climate Change, and
Other Long-Term Fiscal Challenges," by Peter S. Heller (International Monetary
Fund, November 2003, 330p.). Note: The Introduction and Foreword are available
in .pdf format. The book must be purchased from IMF.

Munnel, A.H., Cahill, K.E., and Jivan, N.A., How Has the Shift to 401(k)s Affected
the Retirement Age? 2003. Center for Retirement Research. Boston College. Center
for Retirement Research at Boston College Issue Brief #13.

20. US SENATE BANKING, HOUSING, AND URBAN AFFAIRS HEARING PUBLICATION: "The
Preliminary Findings of the Commission on Affordable Housing and Health Facility
Needs for Seniors, on How We Can Work Better to Meet the Needs of a Growing
Senior Population in this Country," a hearing held June 27, 2002 (S.Hrg.
107-985, .pdf and ASCII text format, 28p.).

21. KAISER FAMILY FOUNDATION CALCULATOR: "Medicare Drug Benefit Calculator,"
(Kaiser Family Foundation, November 2003). Note: "This calculator allows
users to enter their prescription drug costs to determine what they would pay
under the Medicare reform proposal currently being considered in Congress. Enter
annual drug costs below and click on the 'Calculate' button."